[Federal Register Volume 85, Number 149 (Monday, August 3, 2020)]
[Notices]
[Pages 46741-46743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16706]



[[Page 46741]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89410; File No. SR-NYSECHX-2020-21]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Add the Consolidated Audit Trail Industry Member Compliance Rules to 
the List of Minor Rule Violations in Article 12, Rule 8

July 28, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 21, 2020, the NYSE Chicago, Inc. (``NYSE Chicago'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and approving the proposal 
on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add the Consolidated Audit Trail (``CAT'') 
industry member compliance rules to the list of minor rule violations 
in Article 12, Rule 8. The proposed change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add NYSE Chicago's CAT industry member 
compliance rules (the ``CAT Compliance Rules'') to the list of minor 
rule violations in Article 12, Rule 8. This proposal is based upon the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') filing to 
amend FINRA Rule 9217 in order to add FINRA's corresponding CAT 
Compliance Rules to FINRA's list of rules that are eligible for minor 
rule violation plan treatment and the filing of the Exchange's 
affiliate the New York Stock Exchange LLC (``NYSE'') to add NYSE's 
corresponding CAT Compliance Rules to the list of minor rule violations 
in NYSE Rule 9217.\4\
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    \4\ See Securities Exchange Act Release No. 88870 (May 14, 
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013); Securities 
Exchange Act Release No. 89123 (June 23, 2020), 85 FR 39016 (June 
29, 2020) (SR-NYSE-2020-51).
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Proposed Rule Change
    The Exchange recently adopted the CAT Compliance Rules in the Rule 
6.6800 Series in order to implement the National Market System Plan 
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or 
``Plan'').\5\ The CAT NMS Plan was filed by the Plan Participants to 
comply with Rule 613 of Regulation NMS under the Exchange Act,\6\ and 
each Plan Participant accordingly has adopted the same compliance rules 
in the Exchange's Rule 6.6800 Series. The common compliance rules 
adopted by each Plan Participant are designed to require industry 
members to comply with the provisions of the CAT NMS Plan, which 
broadly calls for industry members to record and report timely and 
accurately customer, order, and trade information relating to activity 
in NMS Securities and OTC Equity Securities.
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    \5\ See Securities Exchange Act Release No. 80256 (March 15, 
2017), 82 FR 14526 (March 21, 2017) (SR-CHX-2017-03).
    \6\ 17 CFR 242.613.
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    Article 12, Rule 8 sets forth the list of rules under which a 
Participant, associated person, or registered or non-registered 
employee of a Participant may be subject to a minor fine. Article 12, 
Rule 8 permits the Exchange to impose a fine of up to $5,000 on any 
Participant, associated person, or registered or non-registered 
employee of a Participant for a minor violation of an eligible rule. 
The Exchange proposes to amend Article 12, Rule 8 to add the CAT 
Compliance Rules in the Rule 6.6800 Series to the list of rules 
eligible for disposition pursuant to a minor fine.\7\
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    \7\ FINRA's maximum fine for minor rule violations under FINRA 
Rule 9216(b) is $2,500. Like the NYSE, the Exchange will apply an 
identical maximum fine amount for eligible violations of the Rule 
6.6800 Series to achieve consistency with FINRA and also to amend 
its minor rule violation plan (``MRVP'') to include such fines. Like 
FINRA and the NYSE, the Exchange would be able to pursue a fine 
greater than $2,500 for violations of the Rule 6.6800 Series in a 
regular disciplinary proceeding or a settlement agreement under 
Article 12 as appropriate. As Article 12, Rule 8(a) provides, any 
fine imposed in excess of $2,500 or not otherwise covered by Rule 
19d-1(c)(2) of the Act would be subject to prompt notice to the 
Commission pursuant to Rule 19d-1 under the Act. As noted below, in 
assessing the appropriateness of a minor rule fine with respect to 
CAT Compliance Rules, the Exchange will be guided by the same 
factors that FINRA utilizes. See text accompanying notes 10-11, 
infra.
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    The Exchange is coordinating with FINRA and other Plan Participants 
to promote harmonized and consistent enforcement of all the Plan 
Participants' CAT Compliance Rules. The Commission recently approved a 
Rule 17d-2 Plan under which the regulation of CAT Compliance Rules will 
be allocated among Plan Participants to reduce regulatory duplication 
for industry members that are members of more than one Participant 
(``common members'').\8\ Under the Rule 17d-2 Plan, the regulation of 
CAT Compliance Rules with respect to common members that are members of 
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan, 
responsibility for common members of multiple other Plan Participants 
and not a member of FINRA will be allocated among those other Plan 
Participants, including to the Exchange. For those non-common members 
who are allocated to NYSE Chicago pursuant to the Rule 17d-2 Plan, if 
any, the Exchange and FINRA entered into a Regulatory Services 
Agreement (``RSA'') pursuant to which FINRA will conduct surveillance, 
investigation, examination, and enforcement activity in connection with 
the CAT Compliance Rules on the Exchange's behalf (with the exception 
of such matters once a complaint is filed which in such instance is no 
longer administered through the MRVP). We expect that the other 
exchanges would be entering into a similar RSA.
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    \8\ See Securities Exchange Act Release No. 88366 (March 12, 
2020), 85 FR 15238 (March 17, 2020) (File No. 4-618).
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    In order to achieve consistency with FINRA and the other Plan 
Participants, the Exchange proposes to adopt fines up to $2,500 in 
connection with minor rule fines for violations of the CAT Compliance 
Rules in the Rule 6.6800

[[Page 46742]]

Series under Article 12, Rule 8 and the Exchange's MRVP.\9\
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    \9\ To effectuate this change and make the Exchange's rules more 
like those of its affiliate the NYSE, the Exchange proposes to add 
the following sentence to Article 12, Rule 8(a) based on language in 
NYSE Rule 9217: ``For failures to comply with the Consolidated Audit 
Trail Compliance Rule requirements of the Rule 6.6800 Series, the 
Exchange may impose a minor rule violation fine of up to $2,500. For 
more serious violations, other disciplinary action may be sought.''
    In addition, Article 12, Rule 8(h)(1)(W) would provide that a 
fine up to $2,500 could be sought for violations of the CAT 
Compliance Rules in the Rule 6.6800 Series.
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    FINRA, in connection with its proposed amendment to FINRA Rule 9217 
to make FINRA's CAT Compliance Rules MRVP eligible, has represented 
that it will apply the minor fines for CAT Compliance Rules in the same 
manner that FINRA has for its similar existing audit trail-related 
rules.\10\ Accordingly, in order to promote regulatory consistency, the 
Exchange plans to do the same. Specifically, application of a minor 
rule fine with respect to CAT Compliance Rules will be guided by the 
same factors that FINRA referenced in its filing. However, more formal 
disciplinary proceedings may be warranted instead of minor rule 
dispositions in certain circumstances such as where violations prevent 
regulatory users of the CAT from performing their regulatory functions. 
Where minor rule dispositions are appropriate, the following factors 
help guide the determination of fine amounts:
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    \10\ See SR-FINRA-2020-013; see also FINRA Notice to Members 04-
19 (March 2004) (providing specific factors used to inform 
dispositions for violations of OATS reporting rules).
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     Total number of reports that are not submitted or 
submitted late;
     The timeframe over which the violations occur;
     Whether violations are batched;
     Whether the violations are the result of the actions of 
one individual or the result of faulty systems or procedures;
     Whether the firm has taken remedial measures to correct 
the violations;
     Prior minor rule violations within the past 24 months;
     Collateral effects that the failure has on customers; and
     Collateral effects that the failure has on the Exchange's 
ability to perform its regulatory function.\11\
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    \11\ See id.
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    Upon effectiveness of this rule change, the Exchange will publish a 
regulatory bulletin notifying its Participants of the rule change and 
the specific factors that will be considered in connection with 
assessing minor rule fines described above.
    For the foregoing reasons, the Exchange believes that the proposed 
rule change will result in a coordinated, harmonized approach to CAT 
compliance rule enforcement across Plan Participants that will be 
consistent with the approach FINRA has taken with the CAT rules.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\12\ in general, and furthers the objectives of Section 
6(b)(5),\13\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Minor rule fines provide a meaningful sanction for minor or 
technical violations of rules when the conduct at issue does not 
warrant stronger, immediately reportable disciplinary sanctions. The 
inclusion of a rule in the Exchange's MRVP does not minimize the 
importance of compliance with the rule, nor does it preclude the 
Exchange from choosing to pursue violations of eligible rules through a 
settlement agreement if the nature of the violations or prior 
disciplinary history warrants more significant sanctions. Rather, the 
Exchange believes that the proposed rule change will strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities in cases where full disciplinary proceedings are 
unwarranted in view of the minor nature of the particular violation. 
Rather, the option to impose a minor rule sanction gives the Exchange 
additional flexibility to administer its enforcement program in the 
most effective and efficient manner while still fully meeting the 
Exchange's remedial objectives in addressing violative conduct. 
Specifically, the proposed rule change is designed to prevent 
fraudulent and manipulative acts and practices because it will provide 
the Exchange the ability to issue a minor rule fine for violations of 
the CAT Compliance Rules in the Rule 6.6800 Series where a more formal 
disciplinary action may not be warranted or appropriate consistent with 
the approach of other Plan Participants for the same conduct.
    In connection with the fine level specified in the proposed rule 
change, adding language that minor rule fines for violations of the CAT 
Compliance Rules in the Rule 6.6800 Series shall not exceed $2,500 
would further the goal of transparency and add clarity to the 
Exchange's rules. Adopting the same cap as FINRA and the NYSE for minor 
rule fines in connection with the CAT Compliance Rules would also 
promote regulatory consistency across self-regulatory organizations.
    The Exchange further believes that the proposed amendments to 
Article 12, Rule 8 are consistent with Section 6(b)(6) of the Act,\14\ 
which provides that members and persons associated with members shall 
be appropriately disciplined for violation of the provisions of the 
rules of the exchange, by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a member, or any other fitting 
sanction. As noted, the proposed rule change would provide the Exchange 
ability to sanction minor or technical violations of the Rule 6.6800 
Series pursuant to the Exchange's rules.
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    \14\ 15 U.S.C. 78f(b)(6).
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    Finally, the Exchange also believes that the proposed changes are 
designed to provide a fair procedure for the disciplining of members 
and persons associated with members consistent with Sections 6(b)(7) 
and 6(d) of the Act.\15\ Article 12, Rule 8 does not preclude a 
Participant, associated person, or registered or non-registered 
employee of a Participant from contesting an alleged violation and 
receiving a hearing on the matter with the same procedural rights 
through a litigated disciplinary proceeding.
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    \15\ 15 U.S.C. 78f(b)(7) and 78f(d).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues but rather is concerned 
solely with making the CAT Compliance Rules in the Rule 6.6800 Series 
eligible for a minor rule fine disposition, thereby strengthening the 
Exchange's ability to carry out its oversight and enforcement functions 
and deter potential violative conduct.

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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSECHX-2020-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSECHX-2020-21. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSECHX-2020-21 and should be submitted 
on or before August 24, 2020.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\16\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\17\ which requires that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments and to perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The Commission 
also believes that the proposal is consistent with Sections 6(b)(1) and 
6(b)(6) of the Act \18\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and Exchange rules. Finally, the Commission 
finds that the proposal is consistent with the public interest, the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act, as required by Rule 19d-1(c)(2) under the Act,\19\ which 
governs minor rule violation plans.
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    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \19\ 17 CFR 240.19d-1(c)(2).
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    As stated above, the Exchange proposes to add the CAT Compliance 
Rules to the list of minor rule violations in Article 12, Rule 8 to be 
consistent with the approach FINRA has taken for minor violations of 
its corresponding CAT Compliance Rules.\20\ The Commission has already 
approved FINRA's treatment of CAT Compliance Rules violations when it 
approved the addition of CAT Compliance Rules to FINRA's MRVP.\21\ As 
noted in that order, and similarly herein, the Commission believes that 
Exchange's treatment of CAT Compliance Rules violations as part of its 
MRVP provides a reasonable means of addressing violations that do not 
rise to the level of requiring formal disciplinary proceedings, while 
providing greater flexibility in handling certain violations. However, 
the Commission expects that, as with FINRA, the Exchange will continue 
to conduct surveillance with due diligence and make determinations 
based on its findings, on a case-by-case basis, regarding whether a 
sanction under the rule is appropriate, or whether a violation requires 
formal disciplinary action. Accordingly, the Commission believes the 
proposal raises no novel or significant issues.
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    \20\ As discussed above, the Exchange has entered into a Rule 
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance 
Rules. The Commission notes that, unless relieved by the Commission 
of its responsibility, as may be the case under the Rule 17d-2 Plan, 
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not 
the self-regulatory organization retained to perform regulatory 
functions on the Exchange's behalf pursuant to an RSA. See 
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157 
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying 
text.
    \21\ See supra note 4.
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    For the same reasons discussed above, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\22\ for approving the 
proposed rule change prior to the thirtieth day after the date of 
publication of the notice of the filing thereof in the Federal 
Register. The proposal merely adds the CAT Compliance Rules to the 
Exchange's MRVP and harmonizes its application with FINRA's application 
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission 
believes that a full notice-and-comment period is not necessary before 
approving the proposal.
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    \22\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\23\ and Rule 19d-1(c)(2) thereunder,\24\ that the proposed rule change 
(SR-NYSECHX-2020-21) be, and hereby is, approved on an accelerated 
basis.
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    \23\ 15 U.S.C. 78s(b)(2).
    \24\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16706 Filed 7-31-20; 8:45 am]
BILLING CODE 8011-01-P